Helen Barrett, Partner, CBD Corporates Services comments “The introduction of Corporate Tax creates greater transparency and reporting requirements for businesses operating across the UAE, demonstrating the UAE’s continued commitment to combat money laundering and boost the country’s attractiveness to international investors. This will also help boost the UAE’s rating in the Financial Action Task Force (FATF).”
Who does this affect?
- Corporate Tax will be applied to mainland (onshore) businesses across the UAE with the exception of businesses engaged in the extraction of natural resources e.g. oil and gas companies.
- Branches of foreign companies are generally considered tax payers for CT purposes (unless Free Zone or other exemptions apply). However, the tax treatment of foreign branches must be determined by the jurisdiction of their Head Office and double taxation will avoided by treating branch profits as either exempt or through tax credits.
- Many Free Zones offer incentives, such as, tax free periods of up to 50 years. It is likely that this will continue to be honoured provided such Free Zone entities do not conduct business in mainland UAE.
- UAE holding companies will fall within the scope of the tax law, but certain income streams may be exempt.
- Individuals will not be subject to CT unless conducting a business in the UAE through a commercial, freelance or other licence.
As a new business or incorporation looking to enter the UAE market, here’s what you need to consider:
Corporate Tax period
The CT will apply to financial years starting on or after 1 June 2023. The date of the financial year end of a business will determine when the first tax returns are to be made, for example:
- Businesses with a 31 May financial year end should file their first tax return for the financial year end ending 31 May 2024;
- Businesses with a 30 September financial year end should file their first tax return for the financial year end ending 30 September 2024;
- Businesses with a 31 December financial year end should file their first tax return for the financial year end ending 31 December 2024.
Corporate tax rate
While a 9% tax rate will be applied to businesses whose annual net profits are AED 375,000 or over, a higher rate will be applied to larger establishments or multinationals (i.e. those with consolidated revenues in excess of Euro 750 million or AED 3.15 billion) that fall under the Pillar Two category, amounting to at least 15% in each jurisdiction they operate regardless of where they are headquartered. Corporate tax does not apply to free zone companies.
Transparency and planning
The introduction of the new tax regime affects the fiscal, legal and operational pillars of your business. Comprehension of the tax regime at all levels is imperative to ensure full compliance and sustain operations.
UAE legal framework
The CT comes in addition to VAT, which was introduced in 2018. The legal framework of businesses operating in the UAE has undergone a massive overhaul in the past few years with ramifications both good and bad. These changes seek to introduce international best practices and reinforce the UAE’s position as global hub for doing business. When entering a new market, investors should be aware of applicable laws and the significance they pose to the bottom line.